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Monday, August 11, 2008

Watching out for sleazy short sellers


They're at it again; not, I suppose, that they ever stopped. I refer to the sleazy people who hang around any profession or job, finding ways to cut corners or stretch the truth or just plain lie, to make a sale.

The latest ruse is the unauthorized "short sale". A short sale is supposed to be a sale where the bank has agreed to take less that it is owed, just to get the property off it's books and avoid the hassle and wait that are involved in a foreclosure. Even the ones that are done right take a prolonged period of time to get through and require patience and persistence on the part of the buyers. There are many legitimate short sales being done every day.

Then there are the sleaze-balls of real estate. These operators advertise that they are representing a short sale on the house; but, in fact, have never talked to the bank and have no legitimate authority to offer the house at the price advertised. They are basically playing a game of bait and switch with the potential buyers. Since they have had no contact with the bank, they have no idea what the bank might take; so they just throw some very attractive price on the MLS and hope it attracts unsuspecting buyers with incompetent buyer agents. If the sleazy operator can get the buyers to make an offer; then, they try to contact the bank and "negotiate" a short-sale price. Sometimes these guys go even further into the sleazy muck and find "straw buyers" to take to the bank. These are fake buyers who are used to get a price reaction from the bank and then they somehow always disappear.

Even with a legitimate short-sale, it an take weeks to even get an answer from the bank. They are short-handed in the departments that handle their distressed loans and properties and they tend to also wait to see if there are any more (better) offers, before responding. Many banks just ignore these sleazy operators when they try to put in an offer that was unexpected and well below the loan amount. Of course the sleazy agent involved blames the delay on the bank.

I hit one of these listings recently and unfortunately it was on a home that my clients really like. I had to advise them to be very cautious and very weary of making an offer on the place, since the bank had not been involved yet. I call it a bait and switch scheme because the listing agent knows that the bank is not about to take the very low price that he has advertised; however, if he can hook the buyers strongly enough with a nice house at a great price; then, maybe, he can get them to go up to something that the bank might consider. In many cases the lister wouldn't even take an offer at the listed price to the bank, because he knows how ridiculous it is.

The secondary damage caused by this ploy is that it ties up the buyer in a negotiation process that could take weeks or months; and in the mean time, legitimate houses that they might like are being sold to other buyers. It's a waste of everybody's time. It's not illegal, just extremely questionable and certainly marginally ethical - just plain sleazy.

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